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‘the Panel noted that these provisions, as conceived by the drafters and applied by the CONTRACTING PARTIES, serve mainly to protect the balance of tariff concessions. The idea underlying them is that the improved competitive opportunities that can legitimately be expected from a tariff concession can be frustrated not only by measures proscribed by the General Agreement but also by measures consistent with that Agreement’.
We consider that a ‘measure which is not otherwise regulated by GATT rules’, that is to say to which the GATT does not apply, is, a fortiori, ‘not in conflict’ with the GATT within the meaning of Article XXIII:1(b) or ‘consistent’ within the meaning of the EEC - Oilseeds report. Consequently, we find that the passage in the Japan - Film report cited by the EC, far from supporting their position, confirms the opinion according to which Article XXIII:1(b) applies to a measure whether it is consistent with the GATT because the GATT does not apply to it or is justified by Article XX.
For these reasons, we do not allow the EC''s first argument.”
The European Communities appeals the Panel''s findings and conclusions relating to the first preliminary objections. And this is the first occasion for the Appellate Body to examine Article XXIII:1(b) of the GATT 1994.
When the Appellate Body turns to the European Communities'' argument that Art. XXIII:1(b) does not apply to measures falling within the scope of application of other provisions of the GATT 1994, they rule that: “
The text of Article XXIII:1(b) stipulates that a claim under that provision arises when a ‘benefit’ is being ‘nullified or impaired’ through the ‘application … of any measure, whether or not it conflicts with the provisions of this Agreement’. The wording of the provision, therefore, clearly states that a claim may succeed, under Article XXIII:1(b), even if the measure ‘conflicts’ with some substantive provisions of the GATT 1994. It follows that a measure may, at one and the same time, be inconsistent with, or in breach of, a provision of the GATT 1994 and, nonetheless, give rise to a cause of action under Article XXIII:1(b). Of course, if a measure ‘conflicts’ with a provision of the GATT 1994, that measure must actually fall within the scope of application of that provision of the GATT 1994. We agree with the Panel that this reading of Article XXIII:1(b) is consistent with the panel reports in Japan - Film and EEC - Oilseeds, which both support the view that Article XXIII:1(b) applies to measures which simultaneously fall within the scope of application of other provisions of the GATT 1994. Accordingly, we decline the European Communities'' first ground of appeal under Article XXIII:1(b) of the GATT 1994. ” 8
（iii）Measures Concerning the Protection of Human Health
With regard to the EC''s second argument in EC–Asbestos (DS135), the Panel rules that:9
“
e note, first of all, that neither the text of Article XXIII:1(b) of the GATT 1994 nor that of Article 26:1 of the Understanding expressly incorporates the separation suggested by the EC between measures of a purely commercial nature and measures designed to protect human health. Although these articles require the existence of a measure - which neither of the Parties disputes - they do not distinguish between different types of measures. We have also found, on the basis of Article XX, that the application of the latter does not a priori exclude the application of Article XXIII:1(b). We therefore find that the terms and the context of Article XXIII:1(b) do not support the interpretation proposed by the EC.
Canada cites the preparatory work on the GATT 1947. On the basis of Article 32 of the Vienna Convention, we consider that it is not necessary to have recourse to the preparatory work unless, in particular, the interpretation based on the criteria of Article 31 leaves the meaning of the terms ambiguous or obscure or leads to a manifestly absurd or unreasonable result. Such is not the case. However, recourse to the preparatory work also makes it possible to confirm the meaning resulting from the application of Article 31.
In this respect, we note that the EC consider that Canada''s reading of the preparatory work is selective. According to them, the potential problems of abuse and bad faith to which Canada alludes are adequately covered by the chapeau of Article XX. For the EC, there cannot be two sets of provisions which address the same problem twice.
Although it is not necessary to take a position on the content of the preparatory work, we consider that the EC''s argument tends to confuse two aspects: the first is abuse resulting from the application of a measure falling within one of the paragraphs of Article XX. If a measure necessary to protect human health is applied in a manner that conflicts with the provisions of the introductory clause of Article XX, the measure will still be in conflict with the provisions of the GATT whose violation Article XX is supposed to justify. This aspect is very different from the situation in which a measure is perfectly justified in itself in relation to the GATT (as in the case of a measure which satisfies all the conditions of Article XX), but which, viewed in a given context, could give rise to a situation of nullification or impairment of a benefit under a tariff concession.
It remains, however, for us to discuss the EC''s argument to the effect that the fundamental duty to protect human health cannot be compromised or restricted by the concept of non-violation nullification. We must begin by acknowledging that all the cases examined by panels so far have concerned situations in which the measure adopted following the negotiation of a concession was purely commercial in nature, generally a subsidy, a tariff preference or a measure relating to product distribution. Accordingly, we have no precedents to guide us. However, a preliminary remark, similar to that made in paragraph 8 above, is called for. A finding based on Article XXIII:1(b) of the GATT 1994 and Article 26.1 of the Understanding never results in an obligation not to apply or to withdraw the measure in question. The Member concerned can only be asked to make ‘a mutually satisfactory adjustment’. Article 26:1(b) also specifies that compensation may be part of a mutually satisfactory adjustment as final settlement of the dispute. The Member adopting a public health protection measure is totally free to continue to apply the measure concerned as it stands while offering in exchange compensation for the benefits nullified or impaired.
The Panel also considers, as did the panel in Japan - Film, that non-violation should be approached with caution and treated as an exceptional instrument of dispute settlement. It appears that Members which have negotiated a set of rights and obligations would only exceptionally expect to be challenged for actions not in contravention of those rights or obligations.
Moreover, the Panel is of the opinion that even if the justification of a measure by Article XX does not, in principle, make it impossible to invoke Article XXIII:1(b) in relation to the application of the measure justified, the situation of a measure falling under Article XX with respect to Article XXIII:1(b) cannot be quite the same as that of a measure consistent with another provision of the GATT 1994. This is because Article XX, which is headed ‘General Exceptions’, is intended, in particular, to ensure the protection of public health or, as stated by the Appellate Body in United States - Gasoline, to ‘permit important State interests - including the protection of human health
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